Square-Off: Is Executive Pay Too Low, Too High, or Just Right?
It probably won’t ever be possible to resolve the societal debate over the proper amount of compensation that should rightly be awarded to top corporate executives. It may be no more achievable than national consensus on how to approach health care, taxes, or gender and racial equality. People in business, though, generally take it for granted that the apt amount to pay CEOs and CFOs is best left in the hands of the company’s board of directors. Among the 20 or so folks who responded to o ..
D. Kevin Berchelmann
Judy Bruner thought she had burned her bridges with SanDisk in 1999, when the flash-memory company first offered her the CFO job. Bruner, who was then corporate controller at 3Com, accepted the offer. But 3Com then asked her to become finance chief of its Palm computing subsidiary and spin it off into a stand-alone company. After much soul-searching, she decided to stay and help take Palm public.
“A couple of years later, I got another call from Eli Harari, who was [then] the CEO at SanDisk,” recalls Bruner. “He understood why I had made that decision — that the ability to do an IPO and take a company public that had such a cachet was a real opportunity. So he said he was again recruiting for a CFO, and would I be interested in coming?” But Bruner felt she needed to stay at Palm and help the company through the dot-com crisis. She did agree to join SanDisk’s board and audit committee, though. And when Harari asked her once more to become CFO, in 2004, she said yes.
Evidently, the third time was the charm. Last month Bruner, 54, was named a Silicon Valley CFO of the Year by The Silicon Valley Business Journal. She recently spoke with CFO about the role finance plays in keeping one of the world’s leading flash-memory companies (2011 revenues: $5.6 billion) ahead of the competition.
Unlike many high-tech firms, SanDisk is a vertically integrated company.
Yes, we do everything from developing the flash-memory technology to manufacturing the wafers, and then taking those wafers and turning them into finished products, and ultimately marketing and distributing those products through OEM [original equipment manufacturer] channels as well as retail channels.
Many semiconductor companies outsource their chip production. Why don’t you?
All the key competitors in flash memory have their own fab capacity. We co-own our own capacity in joint ventures with Toshiba; we’re invested in three 300-millimeter [12-inch wafers] fabs. We do that primarily because it gives us the lowest cost, which gives us the best margin, which then gives us more profits to allow us to invest more in R&D. So it’s a virtuous circle. The more profits we can make on products, the more we can invest in R&D, which gives us more opportunity for the future.
We’ve seen time and time again that as the cost of flash memory comes down, new applications emerge. And so originally, for example, digital imaging was the growth driver for SanDisk. Then USB drives became the growth driver, and then mobile phones and tablets.
Are all of your products based on flash memory?
Yes. Each product just takes a different form factor, or plays a different role in some type of end device or application. For example, we take flash memory and turn it into a card that you use in your camera. Or we take flash memory and turn it into a USB drive that you use to store content and transfer content between devices. Or we turn it into a solid-state drive that you use in your notebook or in an enterprise data center. And we take flash memory and turn it into what we call an embedded product, in a device like a phone or a tablet.
We also design what are called controller chips that work to manage the flash memory in a particular application. But every single one of our products utilizes flash memory in some fashion.
What markets are driving SanDisk’s growth?
We operate in three megamarkets: the consumer market, which includes, for example, cards for digital imaging and USB drives; the mobile market; and the computing market. The biggest generator of our revenue today is the mobile market. In the last fiscal year, about half of SanDisk’s revenue was generated from the use of flash memory in mobile phones and tablets. However, moving forward over the next several years, I believe the biggest driver of growth will be the computing market with solid-state drives.
What are solid-state drives used for?
There are two key markets for solid-state drives: the client market and the enterprise market. [In the client market,] we sell a solid-state drive to PC OEMs, which then put it in a notebook. The SSD is uniquely suited to devices that are thin and light and in which the end user wants things like instant-on capability and longer battery life. In the enterprise SSD market, solid-state drives are used in a data center storage configuration to speed up input/output, or in an application server to speed up high compute-intensive applications.
SanDisk had a $341 million order backlog at the end of fiscal 2011. Was this a good thing?
Because our customers can generally cancel orders with limited penalty, we don’t see the backlog as being necessarily indicative of future performance. For us, a key to managing our business is that we produce good forecasts in conjunction with our customers, what types of products they’re going to need and when they are going to need them. We try not to configure the flash memory into a final product until the last minute.
What’s your secret for making forecasts as accurate as possible?
I wish I knew what the secret was. [Laughs.] Really, we look at our forecasts from all different angles and from all different functions within the company. We collect forecasts from our customers. We vet those forecasts within sales, marketing, finance, operations. We do statistical analysis and look at macroeconomic trends. We look at forecasts from industry analysts to see what they think is going to happen in different segments of the market.
So there’s no one answer. We do a lot of work to come up with what we think is our best forecast.
When it comes to strategic planning, what’s your time horizon?
Typically, we develop a strategic plan that goes out three years — the rest of the current year plus three. We do that every year, and we dive deep into the demand side of the markets that we are addressing as well as the supply side of determining capacity and technology trends over that time frame.
What I think is particularly attractive about SanDisk and the business we’re in is that the underlying markets that we’re serving are all growing, despite the fact that there is some macroeconomic weakness out there.
I’m told that you wear more than one hat at the company. What other responsibilities do you have?
In addition to finance, I have responsibility for IT; the CIO reports to me. Legal, the general counsel reports to me. Corporate communications — PR, website, internal communications. And then facilities. In fact, I was in India last week with our CIO looking at various facilities for growth.
Do you ever feel that that’s too many hats to wear?
Well, I wouldn’t recommend it for a brand-new CFO. But I think of it as an advantage for SanDisk and for me, because there are so many synergies between these different groups. For example, a key focus of IT is what application infrastructure the company needs to run most efficiently and to best track its costs, prices, sales, and inventory. And so the IT organization works very closely with the finance organization to determine what the best applications are, and how we should install and configure them. Then, of course, IT supports the whole company.
That gets to another point: one of the most exciting things about being a CFO is that you get to work broadly across the company, with operations and sales and marketing and engineering and so on. I enjoy using financial planning to help shape the strategy of the company.